賽富時 (CRM) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

My name is David and I will be your conference operator today.

At this time I would like to welcome everyone to the salesforce.com Q1 fiscal results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions).

I would now like to turn the call over to Mr.

David Havlek, Vice President of Investor Relations.

Sir, you may begin your conference.

Thanks, David.

I would like to welcome everyone to the salesforce.com first-quarter fiscal year 2012 results call.

Joining me to discuss our results today as always are Marc Benioff, Chairman and CEO; and Graham Smith, our CFO.

Following our prepared remarks, we will open things up to your questions.

As always, I ask as a courtesy to your peers, please limit yourself to one question today.

A complete disclosure of our first-quarter results can be found in a press release issued about an hour ago as well as in our Form 8-K filed with the SEC.

Additional financial information including detailed historical financial statements and facts is available on our website.

Our commentary today will primarily be in non-GAAP terms.

Reconciliations between GAAP and non-GAAP metrics for both our reported results and our forward guidance can be found in our press release.

At times in our prepared comments today or in responses to your questions, we may offer incremental metrics to provide a greater understanding of our business or our quarterly results.

Please be advised that some of these disclosures are one-time in nature and we may or may not update those metrics in the future.

Also of importance, beginning in the third quarter, we will no longer be reporting our customer account metric on a quarterly basis.

Instead we plan to update that metric when we achieve notable milestones.

We're making this change because recent acquisitions, primarily Heroku and Manymoon, have added a large number of users.

Linking those users to specific customer organizations can be extremely challenging and in some cases impossible.

As a result, we believe our traditional customer metric will become less meaningful over time.

We plan to report the customer metric using our traditional measure one last time in Q2.

With that, let me make this call official with a brief Safe Harbor.

The primary purpose of today's call is to provide you with information regarding our fiscal first-quarter 2012 performance.

Some of our discussion and responses to your questions may contain forward-looking statements.

These statements are subject to risks, uncertainties and assumptions.

Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual Company results could differ materially from these forward-looking statements.

All of these risks, uncertainties and assumptions as well as other information on potential factors that could affect our financial results are included in our reports filed with the SEC including our most recent report on Form 10-K particularly under the heading Risk Factors.

To access our first-quarter press release including the GAAP and non-GAAP reconciliations or historical results, any of our SEC disclosures or simply to learn more about salesforce.com I, encourage you to visit our Investor Relations website.

In addition, a webcast of today's call will be available for 90 days and a dial-in replay will be available through June 16.

Finally, before I turn the call over to Mark, please be advised that we may reference certain unreleased services or features that are not currently available in today's discussion.

We can't guarantee the future timing or availability of these services or features and as such, customers who purchase our services should make their purchase decisions based on services and features that are currently available.

With that, let me turn the call over to Mark to discuss our excellent first-quarter results.

Mark?

Thanks, David.

Our first quarter was indeed a fantastic kickoff to fiscal year 2012, continuing the momentum experienced in fiscal year 2011.

I'm thrilled to report that just one quarter into our fiscal year, we've crossed the threshold of the $2 billion annual revenue run rate.

As you can see from the revenue, we are absolutely delighted now to be at a new level of performance of our Company and our revenue growth rate is accelerating.

Let me begin by briefly reviewing some of our financial highlights of the quarter.

Revenue of $504 million was 34% from the year ago quarter.

Deferred revenue also accelerated to $915 million, a 38% year-over-year increase; incredible.

And we also delivered $140 million of operating cash flow and over the past 12 months, we've generated roughly $460 million in operating cash, an increase of more than 40% from a year ago period.

Finally, David, we are pleased to be able to raise revenue guidance to $2.15 billion to $2.17 billion, a significant increase once again to our revenue guidance for fiscal year 2012 and our second increase this year, the first one after we acquired Radian6.

Now, I'd like to say a few words about Japan and the Japan disaster before we begin.

First of all, let me personally and on behalf of salesforce.com and our employees and our shareholders send our condolences to the victims of the Japan disaster.

Our sadness is overwhelming and we are deeply with you and we send our wishes for a quick recovery.

Now like many companies, of course our business is also affected by the earthquake in Japan.

However, the diligence of our Japan team ended the quarter closer to their original plan than we could really have ever expected.

In fact, one of our 10 largest transactions for the quarter was from Japan.

It's also important to note that none of our Japanese customers including our largest customer, the Japanese government, suffered any service interruptions because of the disaster.

salesforce.com delivered 100% reliability and availability during the disaster.

This is truly a testament to the power of our cloud computing model which we think will play a key role in Japan's building efforts and rebuilding efforts and we will be talking more about that next week.

I'll be in Tokyo and I will be making several announcements about our commitment to Japan, the opening of our new Japan data center and new strategic agreements that we are reaching with customers in Japan.

We are truly doubling down on our commitment to Japan.

We've raised more than $1 million for the victims of the disaster.

And in my discussions next week, we will be having several strategic announcements that we hope will inspire Japan's innovators, Japan's customers as well as our global shareholders.

And I look forward to speaking to all of you from our headquarters in Tokyo next week.

Our financial momentum in the quarter was powered by our strategic decision to bring social, mobile and open cloud technologies or what we have been calling for over a year Cloud 2 to the enterprise.

And third parties agree that these trends are really the future of our industry.

A recent independent survey by McKinsey & Co.

reported that companies that are using what we call Cloud 2 or social networking technologies within the enterprise are more flexible, collaborate better, achieve greater market share and have higher margins.

It's just a very exciting shift for companies all over the world who are able to bring in the power of mobility, the power of social and the power of open coupled with the cloud computing model that we have been talking about now for over a decade.

And in a February report, Morgan Stanley confirmed that enterprises are embracing mobile devices.

51% of the CIOs they surveyed expected to buy tablets for employees this year and another 16% will allow employees to use their own devices to access data corporate data.

Now I can tell you that personally in the quarter, I met with over 170 customers, many of them in small lunches and dinners as well as in one-on-one meetings throughout the quarter.

I spent an extensive amount of time in the field and around the world with our customers.

And the reason why is because this shift is so big, so broad and so unique that I really felt I personally had to get out and really talk to customers about what they are going through.

And what amazed me was I would say approximately or more than half -- certainly more than half of all of the attendees brought their iPads in to meetings with me.

That really blew me away.

Now of course while I'm in these meetings with them, I have an iPad as well and I'm showing them Salesforce Chatter on the iPad and that's important because as you know, Chatter is the foundation of our cloud 2 mission.

As a stand-alone product, Chatter opens doors for us with these C-level executives and they can see the benefits of open transparent workplaces and moving to this new social enterprise model.

But more important, the private and secure social network has supercharged all of our offerings in sales with the Sales Cloud and service with the Service Cloud and data with Jigsaw, in our force.com platform with Heroku and of course with our new offerings with Radian6.

And now all of our customers have immediate access to a social layer where regardless of whether they're using salesforce or more than the 220,000 custom apps built on Force.com.

And the response from our customers as I've traveled around and feedback from all of our executives to this vision of Cloud 2 is really amazing.

In Q1 we added 5400 net new customers, taking the global community of our core apps and platforms to more than 97,700 paying customers, a 26% year-over-year increase in customers.

And of course that does not include Heroku, that does not include Manymoon, that does not include Radian6.

That's 97,700 core paying customers.

We obviously have many more paying customers and of course our foundation has free customers as well which are the non-profits and the NGOs that we offer our products free to.

And we're also offering our products for free to many companies affected in the Japan disaster, and we will be talking about that in Tokyo next week.

Today we see customers buying more.

There is definitely a higher buying environment going on and more kinds of our products.

In fact, one-third of new business in the first quarter came from non-Sales Cloud services.

A couple of great examples are two of our marquee transactions in the quarter which are Groupon which is the nouveau riche company in Chicago and Bank of America.

Groupon is the world's fastest growing company, offering daily deals on events and food and services in 44 countries.

And while they initially talked to us about the Sales Cloud which has been the heart of their growth, of their sales and marketing efforts, we showed them how the platform Force.com and a full range of services could supercharge their businesses and deliver the quality and scale they need to maintain their phenomenal growth rate.

And now the Force.com platform will touch nearly every aspect of Groupon's business whether it is their management of merchants, the core of their business, their city planning and merchandising efforts, their customer service and consumer support, whether it's the development of their coupons, Force.com will help them to re-architect their company for the future.

And Bank of America has entrusted us to help add thousands of Service Cloud seats, enabling its home loan service reps to quickly and accurately solve problems across all of their support channels and customer touch points.

And we're also delivering tremendous success and seeing momentum in companies like General Electric.

We're helping major divisions including GE Capital and GE Energy, GE Transportation, GE Healthcare find new unique ways to use our apps and platforms to form deeper relationships with their customers.

Our flagship Sales Cloud continued to crush the competition in the quarter.

Microsoft's desperate strategy of undercutting pricing with undifferentiated and highly proprietary products basically has had the same impact on our business as the Windows tablet and Zune did against the iPad an iPod.

We call Microsoft's strategy the Zune strategy.

It's the concept that they can take a proprietary, undifferentiated offering at a lower price and somehow make an impact on a high-value, highly differentiated product that is loved by customers.

Microsoft has not changed our exceptional win rates or affected our average selling price with this Zune strategy.

Customers continue to want visionary products that give them a competitive advantage, not the me-too Zune type products locking them into these old proprietary desktop-driven platforms that are dying off.

Against Microsoft, we won significant new or add-on business at companies like Eli Lilly, Cargill, Honeywell, Ingram Micro, Shanghai Airport in Singapore, Bombardier, Banco Espirito Santo, Biotec, Digia Finland, Greenway Medical, LQ Management, LXE, Misys, Monumental Sports Entertainment, and the New Zealand Defense Force.

These wins against Microsoft were new wins but we also signed companies that had bought the Microsoft Zune CRM, tried it and threw it out and customers included the Advantage Brokerage Support Services, Angie's List, CHC Helicopter, the [nam check all plan] and the OC Tanner.

Against Oracle which has tried to convince customers to load proprietary software onto proprietary mainframes, a strategy made popular by IBM in the 1960s, we won significant new or add-on business with customers such as Bridgestone, Office Depot, Sony and SunTec.

And believe there is still plenty of opportunity ahead with millions of businesses around the world who are looking to leave these proprietary models.

The combination of Chatter, the seamless integration of Jigsaw data and mobility sets the Sales Cloud apart.

It's a unique offering, it's highly differentiated, it's innovative, it's creative and it's one of the most highly rated CRM services in the world today.

Certainly it's the most loved.

We also saw customer velocity in our Service Cloud, our fastest growing business in the first quarter.

Today, approximately 16,000 companies are using the Service Cloud to connect with customers across both traditional and new service channels including e-mail, telephone, social media, and the web.

In March, we unveiled Service Cloud 3 which let companies directly engage with their customers over Facebook, Twitter, and a broad range of social communities and leveraging new mobile capabilities like Apple's Face Time.

Essentially, Service Cloud 3 lets customers go where their customers are, in the cloud; provide them with the customer service, the call center, the contact center, the portal, the technology they need to provide that customer service capability.

Salesforce Service Cloud 3 is a uniquely differentiated and highly successful product and just last month, the Service Cloud was positioned in the leader's quadrant of Gartner's Magic Quadrant for CRM customer service and contact centers.

Pretty incredible considering this is a relatively new entrant from salesforce.com to see Service Cloud so highly rated by Gartner in the Magic Quadrant.

Major wins or expansions of the Service Cloud during the quarter included Bank of America and Nissan North America, Paychex, P&H Mining, RBS, Scripps, Sony.

And finally, the Force.com platform continues to be the only proven enterprise cloud platform as a service on the market today, delivering the highest levels of reliability, scalability and performance, delivering our customers with the tools they need to build their own cloud applications to help integrate their products into the cloud and to help them rapidly deploy new technologies using Force.com.

And because Chatter is integrated into Force.com, the platform gives developers and customers instant access to these next-generation social capabilities.

But more than that, the platform also provides the foundation for apps that are mobile and open.

Last quarter we introduced Database.com, the first enterprise database built for the cloud which includes developers to be able to write apps in any language on any platform on any device and do it all in the cloud.

We also acquired Heroku, the leading platform as a service for writing apps in Ruby on Rails.

And Heroku was designed from the start to support multiple languages and we hope to be soon be talking about our strategy in offering many, many languages in the cloud using the Heroku capability.

We believe Force.com and Heroku will attract a diverse community of developers and partners who want to create Cloud 2 apps and it's already happened.

Over the last 12 months, we added more than 130,000 developers, creating a global community of more than 380,000.

Our open strategy will push that even further as more developers write enterprise cloud apps whether it's using Ruby on Heroku, whether it is Java on VMforce or whether it's Apex on Force.com and we're now managing more than 1 billion lines of code using these technologies from our customers on our cloud, 1 billion lines of code.

Customers now building on the Force.com platform or that have extended their deployment include Genentech, Hitachi, Medtronic; METI, the Ministry of Economy, Trade and Industry in Japan; and United HealthCare Services.

And our customers and partners continue to increase their usage of our platforms.

During the quarter, Force.com delivered 31 billion transactions.

That is 31 billion complex database transactions for our customers, up more than 60% from a year ago.

And that's almost 2.5 times Twitter's 13 billion tweets in the same period.

Last year salesforce.com educated the market on the benefits of social collaboration in the enterprise.

We have shown how Chatter is transforming the way companies work and that employees do their jobs, improving productivity, sharing insights, connecting with experts and making better decisions all in real-time.

New Chatter deployments in the first quarter included Akamai, CIGNA, L'Oreal, Seagate, Tata, VMware and Vodafone.

And as companies discover the breakthroughs in communication and collaboration that Chatter provides, they're taking it across the enterprise.

Chatter is also helping salesforce.com reach entirely new customers, giving us a pipeline for selling other products and new services.

Customers expanding their deployments of Chatter in the first quarter included GlaxoSmithKline, O2, Savvis, Sony and Starwood Hotels all deploying Chatter in the first quarter.

In addition, our largest Chatter deployments [at Dell], in SunGard, new enterprisewide deployments now include Avaya and Bausch & Lomb, VMC, Juniper, Kelly, Symantec and many, many others.

By leveraging our Cloud 2 strategy, we're becoming a more strategic partner to our customers.

And now when I meet with the CEOs and CIOs of the world's biggest companies, they want to hear how we help them use social, mobile and open cloud computing to partner and become more innovative and responsive so they can serve their own customers and become social enterprises.

That's why we are investing so aggressively for growth in people and technology and in partnerships.

First with people over the last 12 months, we added approximately 1400 employees which will help us to sell even more into the future.

And second with technology, earlier this month we completed our purchase of Radian6, the leading platform for monitoring, engaging in millions of conversations happening everyday on Facebook, on Twitter, on social communities, on websites.

Soon customers will be able to monitor and join in these public conversations from within our products including Chatter.

And if you haven't had the opportunity to see Radian6, and it's a spectacular product and one of the most exciting technologies I have ever had the opportunity to work with, you can check it out yourself at Radian6.com and monitor how your brands, how your employees, how your companies and your competitors are interacting throughout the Internet.

It's a real-time view into the Internet that makes all of our customers more competitive.

We believe this is a massive opportunity to redefine cloud computing.

It's giving customers the social intelligence they want with the business context they need, and it opens the opportunity for us to sell more strategically in the marketing departments.

It further differentiates the Sales Cloud, the Service Cloud.

It further differentiates the platform and Chatter.

And then finally with partnerships in the first quarter, we announced a strategic alliance with Intuit which will integrate Salesforce CRM in their QuickBooks financial applications and resell it to the Intuit's base of 4 million QuickBooks customers.

This alliance dramatically extends our reach into the small-business with a partner that is the gold standard for small business computing.

And as we look for future small business initiatives like our recent acquisition of Manymoon, we see that as a growing and strategic part of our business as well.

Today customers, developers and ISVs like BMC and Computer Associates view us as the strategic partner who can help them understand and profit from social computing.

It's been an exciting time for us to build these strategic relationships with ISVs and you'll see many more relationships as we head towards Dreamforce.

So now before I close, I want to invite you to join me in San Francisco on August 30 through September 2 for the world's largest cloud computing event Dreamforce 2011.

We'll have a lot of exciting announcements between now and Dreamforce and Dreamforce will be the culmination and discussion and revelation of what is the social enterprise for our customers.

Dreamforce will have the biggest selection of cloud computing products ever under one roof and the largest gathering of cloud experts, more than 450 sessions on cloud computing.

It is the place to learn about the next generation of cloud and to collaborate with others in the industry.

And I will look forward to seeing all of you there.

And with that, I will hand it over to Graham.

Thanks, Marc.

Q1 was an exciting start of fiscal 2012.

Revenues of $504 million rose 34% year over year, well above our outlook entering the quarter.

This significant overachievement was the result of three factors.

First, the strong new business performance that Marc described earlier.

Second, there was significant strengthening in the euro and the yen.

And then finally, continued reduction in our attrition rate.

On the attrition front, our dollar attrition when compared to a year ago continued its steady decline from its peak back in the second quarter of fiscal 2010 but remains in the mid-teens percentage.

Obviously, an improving global economy is helping customer retention rates.

But given its importance, we are continuing to invest in areas critical to customer success such as customer on-boarding, enhanced training and usage analysis and predictive monitoring.

Because the costs to renew and grow existing customers is much slower than the cost of acquiring new ones, these efforts are an extremely important part of our long-term growth strategy.

Turning next to geographic performance, we saw strength in all three major geographies.

In Q1, Americas revenue rose 31% year over year to approximately $340 million.

International revenue rose 40% in dollars and 33% in constant currency versus the year ago quarter and now represents roughly 33% of total Company revenue.

That's up from 31% a year ago.

The stronger euro and yen contributed roughly 2 points of FX benefit to our reported Company revenue growth in Q1.

Looking at some regional detail, in EMEA revenue of $94 million rose 41% in dollars and 36% in constant currency; and in Asia, revenue increased by 38% of dollars and 29% in constant currency to roughly $70 million.

Marc already mentioned our Japan business and looking ahead, it's difficult to predict the extent or duration of the current slowdown.

Our revenue growth in Asia was affected in Q1.

We tried to factor in a realistic forecast for Japan for the remainder of the year.

Fortunately the strength of our businesses in the Americas and EMEA has resulted in us still being able to raise revenue guidance overall.

Looking onto the income statement, our first-quarter non-GAAP gross margin of 82% remained essentially flat both sequentially and year over year.

There are a couple of points to highlight in Q1.

First, due to our strong transaction growth trend, we continue to make investments in our service delivery infrastructure.

Q1 we had the full expense impact of our third and fourth US data centers as well as some early costs associated with the buildout of our Japan data center.

The net effect of these investments was to reduce year-over-year non-GAAP gross margin for our subscription business by roughly 2 points.

Offsetting the impact of these investments was the continuing revenue mix shift away from our lower-margin professional services business as our partners take an ever-increasing share of the implementation services.

Our first quarter non-GAAP operating margin of approximately 11% was unchanged from Q4 but down 5 points from a year ago.

Three primary factors are driving the year-over-year increase in operating expenses.

First, we have acquired seven companies since Q1 last year.

While Jigsaw is on track to get to non-GAAP breakeven in the six to eight quarter timeframe we discussed last year, the remaining acquisitions are dilutive to operating margins.

Nevertheless we believe these acquisitions are important to extend our Cloud 2 vision around social, mobile and open and the strength of our Q1 performance reflects this belief.

Second as we indicated in Q4, the accelerated hiring in the second half of last year is helping new business momentum but increasing expenses.

In Q1, we really felt the full effect of the roughly 850 employees we added in Q3 and Q4.

In addition, we added approximately 200 people in the first quarter, taking our employee population to just over 5500.

Because growth is our top priority and because our people fuel that growth, you should expect us to continue to hire aggressively for the remainder of fiscal 2012.

And finally in Q1, we spent significantly on marketing programs.

Our first ever Super Bowl ad, our Wall Street Journal Chatter ad campaign and large Cloudforce events in New York and Paris were among the many investments we made in our brand and building awareness of our industry-leading products.

Our effective non-GAAP tax rate for Q1 was 35%.

As a result of the Radian6 acquisition, we expect to incur a slightly lower overall tax rate for fiscal 2012.

We now estimate our non-GAAP tax rate will be approximately 30% in Q2 and 33% in Q3 and Q4 for a full year estimated non-GAAP rate of 33%.

This decrease in our estimated 2012 tax rate will add $0.02 to EPS in Q2 and $0.01 to EPS in each of Q3 and Q4 for a total net benefit of $0.04 for the year which I'll cover in my guidance comments later.

We delivered non-GAAP EPS of $0.28 in Q1.

That's $0.01 above the high end of our guidance range but it was down 7% from the $0.30 we recorded in Q1 of last year.

I'd like to just spend a minute on discussing our operating principles as we head into fiscal 2012.

We are clearly managing the business to maximize revenue growth as our number one priority.

We just passed the $2 billion revenue run rate and are focused on getting to $3 billion as rapidly as possible.

We want to invest in distribution capacity, product development, service delivery to provide our customers and prospects with the strategic partnership they need as they transform their businesses with the cloud model.

We believe that our accelerating growth rate reflects our customers' desire for transformation and the market shift to cloud computing.

Historically we've discussed 100 to 300 basis points of operating margin improvement each year as one of our financial goals.

We achieved that goal consistently in fiscal years 2008, 2009 and 2010.

However during those years our only significant acquisition was Instinet.

Over the past four quarters as I mentioned earlier, we completed seven acquisitions including Jigsaw, Heroku, and now Radian6.

So while we're always focused on increasing operational efficiency, our efforts are not necessarily visible in our reported operating margin while we're adding strategic fast-growing but nevertheless dilutive acquisitions to expand our Cloud 2 vision.

So our approach for fiscal 2012 is to provide quarterly and full-year revenue and earnings guidance and to deliver on that guidance.

To the extent that we have upside on revenue in any particular quarter, we will look to invest that upside and accelerated our growth through hiring, marketing programs and data center capacity.

If we execute well, we will have higher revenue growth and slightly lower operating margins but still hit our earnings goals.

Fundamentally we believe that investing in growth is the best way to create long-term shareholder value.

Now onto cash flow and balance sheet.

First-quarter operating cash generation was $140 million, down just slightly from last year's number of $143 million.

As I discussed on our last call, higher sales commission and bonus payouts from our strong fiscal 2011 finish together with the increased hiring I mentioned a while back affected our first-quarter cash flow.

Capital spending was $27 million in Q1, primarily the result of leasehold improvements in three different office locations and investments in our service delivery infrastructure.

Free cash flow defined as operating cash flow less CapEx was $112 million in the quarter.

That's down 15% from last year.

Our definition of CapEx for this purpose excludes cash outflows relating to land activity and campus building improvements which was just $1 million in the first quarter.

As we look to the remainder of the year, our strong first-quarter operating cash flow invoicing gives me confidence to raise our operating cash flow estimates.

We now expect full-year operating cash flow to grow at a mid to high teens percentage rate, up from our prior guidance of low to mid teens percentage rate.

Given our business model, we believe operating cash flow continues to be an important measure of our success.

Turning to the balance sheet, total cash and equivalents including short and long-term marketable securities finished the quarter at roughly $1.5 billion, that's up about $115 million from Q4 but down approximately $339 million from Q1 last year primarily as a result of our acquisition activity in the past four quarters.

Please remember that we already paid approximately $285 million in early May as part of the Radian6 purchase consideration.

Our $575 million of convertible notes are significantly in the money and it's important to understand that the note conversion feature increased our fully diluted share count this quarter by approximately 3 million shares.

However please remember that the hedge we executed at the same time as the notes will eliminate all but roughly 500 shares of this dilution when the notes reach maturity in January 2015.

Also please note that because the conversion trigger provision was met at the end of Q4 and at the end of Q1, the convertible notes are now shown under current liabilities.

Deferred revenue finished the quarter at roughly $915 million.

That's an increase of 38% from the year ago quarter, our largest increase since the fourth quarter of fiscal 2009.

Sequentially deferred revenue declined by $20 million, a result that included approximately $15 million of sequential FX benefit and about $21 million of FX benefit versus Q1 last year.

Historically deferred revenue tends to be roughly flat from Q1 to Q2.

This year given our strong Q1 result and some significant currency benefit in our first-quarter number, we expect deferred revenue to be flat to down slightly at the end of Q2.

And finally, strong invoicing pushed Q1 receivables up 47% year over year to approximately $271 million.

The result was a four day year-over-year increase in DSO to 48 days.

This increase was purely a function of the strength of our business in Q1.

Our first-quarter collections were great and our receivables aging is in good shape.

Let me close with our outlook.

I'm very pleased to be able to raise the high end of our full-year revenue outlook by $70 million to a range of $2.15 billion to $2.17 billion.

The high end of the revenue range represents the year-over-year revenue growth rate of over 30%.

Please remember that this range includes approximately $20 million of benefit from the adoption of the new revenue accounting standard 08-01.

The incremental revenue recognized under this new accounting standard in Q1 was approximately $1.5 million, but we do expect its effect to ramp up across the quarters this year.

We now project non-GAAP EPS of approximately $1.30 to $1.32.

This range reflects the $0.11 dilutive impact to the Radian6 acquisition offset by the $0.01 overachievement that we just reported in Q1 and the $0.04 improvement in earnings from our lower estimated effective tax rate that I discussed earlier.

Although we are raising our overall EPS outlook for the year, I would like to remind you that Dreamforce will have a significant impact, we estimate at least $0.06 of EPS, on our Q3 results.

Second-quarter revenue is projected to be in the range of $526 million to $528 million.

This estimate includes approximately $5 million relating to revenue recognized on a cash basis for Radian6.

I just want to point out that we have no prior experience at managing Radian6's receivables.

We expect non-GAAP EPS of approximately $0.29 to $0.30 in the second quarter.

Before I close, I'll remind you all of the underlying assumptions listed in our Q2 and full-year revenue and non-GAAP EPS guidance as well as our GAAP guidance and assumptions can be found in our earnings press release.

Please note that (inaudible) has not yet completed its purchase price (inaudible) Radian6 and our GAAP EPS forecast contains estimates of the Radian6 acquisition accounting.

So with that, I would like to thank you all for joining us today and I'll open the call up for your questions.

Operator?

(Operator Instructions) Laura Lederman, William Blair.

Great quarter, thank you so much.

A few quick questions.

One is I remember when I first started looking at you guys -- what was it?

Like nine years ago now.

A big deal was like 1000 seats and not much revenue and then a big deal became $3 million and 100,000 seats.

Just trying to get a sense of how big a big deal is these days anyway that you want to quantify them, just to give us color on big.

Then I'll follow up with one other.

Well there's basically two types of deals here at salesforce.

There's extraordinary deals which are eight-digit deals and there's big deals that are seven-digit deals.

And that's where we're regularly seeing now eight-digit deals and that's very exciting for us, Laura, so thanks for the question.

And real quickly, can you talk a little bit about what you do with Radian6 in terms of taking it down market and maybe also building a broader Marketing Cloud?

I think that Radian6 is a super exciting product.

I think we are extremely fortunate to be able to acquire this company.

It's on a revenue tear as you know, it's probably the fastest growing of all the cloud computing companies that I have ever seen.

The management team is spectacular.

I think that probably one of the best parts of the acquisition was the CEO.

Marcel is just a tremendous executive and a great new addition to salesforce.com's management team.

Each of their executives that I've met and their individual employees just have a very unique view and a very powerful view of the future of our industry.

It certainly does set this foundation for a Marketing Cloud for salesforce.

It's the right place to start a Marketing Cloud when you look at today's world that's being driven by social networks.

That's the most important thing in marketing is what is going on in these communities and your brand has become a real-time conversation.

It's not about advertising anymore, it's not about campaigns, it's not about events, it's all about the conversation on the Internet and Radian6 is the leader in monitoring and managing that conversation for more than half of the Fortune 100, and they're really just getting going.

It's a great team, great product, great technology.

And if you haven't seen it, Laura, you should get an account at Radian6.com and you can sign up with the keywords that are key to you like all the accounts you follow, all the executives you follow, the products you follow, the competitors you follow.

You put all that in and Radian6 is going to give you the information you need to make better decisions.

So it really is the beginning of the Marketing Cloud.

Mark Murphy, Piper Jaffray.

Yes, thank you very much.

Marc, this level of growth is very rare for a multibillion dollar company, and so I'm just wondering to what extent should we attribute this growth rate to the effect of some of your newer viral or premium products like Chatter.com, Database.com and Heroku just in terms of their ability to expand your addressable customer base and maybe trigger a different perception in the developer community.

Well, what I really think is we are seeing an extraordinary growth rate.

And you know, we were meeting yesterday, reviewing the top 10 software companies in the world and their size and our ranking in them.

And then we really look at how long is it going to take us to get into the top five which we really think is really the doable next step for salesforce.com.

Of course we are going to be the biggest cloud player, but we want to be one of the top five software companies in the world.

That is our next goal.

You've seen us pass 2 billion, you're going to see us pass 3 billion.

I think that is just -- you can see it in our run rate.

You can see it in our deferred.

You can see it in the momentum we have around the world.

No success is linear.

That is something that Michael Bell always tells me, and I believe that.

But I also look at nine quarters now accelerating revenue run rate.

Pretty awesome.

And we see a big buying environment out there.

And as I said, I met with 170 customers this quarter, they are all buying.

And they're all looking to rebuild their enterprises, and we have to execute against that opportunity.

Sales execution is a difficult thing as you know.

We did make a major investment last year we've talked extensively with you about, a 40% increase in our distribution organization.

The vast majority of that is really probably yet to come online.

And that's as I've said publicly before, the upside.

We have great products with the Sales Cloud, we've got the Service Cloud, we've got Jigsaw, we've got Radian6, we've got the Force.com platform, we've got Chatter, we've got plenty to sell.

Customers want this next generation of technology, they want to build these social enterprises.

You're going to see me next week in Japan with a major auto manufacturer talking about how we're bringing their products into the social networks and how cars are becoming your friends on social networks, not just people, and that's true for all of our customers.

They are looking at products in terms of how are their products integrated with our technology.

We see our customers wanting to become cloud providers.

Not just Groupon, but a lot of our customers who are maybe traditional products manufacturers whether it's consumer product goods or traditional manufacturing, they want to build products that are operating in the cloud.

And the reason why?

Their customers are in the cloud, they need to get in the cloud to be with their customers.

We are that avenue, we are the bridge.

How are you going to do that with SAP?

How are you going to do that with Microsoft Server?

How are you going to do that with an Oracle Exadata mainframe?

You just can't do it.

And that's where we're getting the action because customers realize they're going to build new apps with our platform, they're going to deploy new types of social sales, new kind of social service, social marketing with Radian6.

They see our social data collection and reporting through Jigsaw, it's a great opportunity and it's really our sales challenge to get out there and to continue to close the deals, to do like what Laura was saying, to create the extraordinary transactions and that is our opportunity and that is also our challenge.

Kash Rangan, Merrill Lynch.

Nice to see the acceleration of long multiple metrics.

Marc, when I look the business, I mean there's probably several things that are driving this acceleration, not the least of which is distribution, news seats, retention is improving, you're up-selling to the platform edition, you've got more seats at existing customers and you've got new products.

I know that's a laundry list, but if you think about each of these things, if you can, which of these is likely to be an enduring source of growth for the Company as you look at the next -- at the remainder of this fiscal year?

And also, I don't know if you can comment at all, securing the cloud has taken a bit of an issue or focus should we say following the Sony-Amazon development.

I'm just curious if you can give us an update on how you're securing the salesforce Cloud.

Thank you very much.

Sure, I'll take that first.

I mean I think as I've said publicly and if you go to my Wikipedia page, you can see a report that I wrote in 2005 to the President of the United States on cyber security as a crisis of prioritization for the government and for a lot of companies.

And I think that cyber security is tough.

There's no finish line when it comes to cyber security.

Everybody's got problems, everybody will have problems, computers are not perfect.

And you've got to double down on cyber security.

If you are in our business and honestly if you are in any business.

I really think that this is one of the reasons that we are more successful is because our customers cannot do this.

It is tough and there's no finish line when it comes to security.

There's no perfection when it comes to security.

So, we have to work harder and we have to be a surrogate for a lot of our customers in providing that capability.

I think one area that we have a unique model that we've benefited from is I think every day maybe two or three of our customers show up and do security reviews with us.

They're reviewing our data centers, they're reviewing our code, they're reviewing our networks.

In many cases those customers are only doing a couple of security reviews themselves a year.

They've got an out vendor -- I don't know how many vendors Sony has for example.

We're obviously a vendor to Sony, but in terms of cyber security to Sony, how many vendors do they have checking their technology on a regular basis?

Most companies have a couple.

They check a couple times a year.

We're fortunate we've got people checking us every day.

Is that the panacea?

Is that going to be -- is that the be-all end-all?

No.

It's not.

So we have to double down, everybody does.

And as I said at the Gartner symposium last year, if security is not your number one issue for your company, it should be.

In regards to kind of reliability issues with Amazon, they obviously -- they had a problem.

They got through it, they're obviously stronger for it.

It's one of the benefits of the model.

We've had our own reliability issues along the way, I'm sure you remember.

And no computer is perfect.

But if you look at for example are operating history now, over 12 years of operating in our service.

I think we're about better than any of our customers.

I don't know a customer that's had better reliability and operating history than salesforce.com over the last decade.

So I think cloud computing is the right model.

Will there be issues?

Of course.

And you've got to deal with those issues head-on and move on.

And that's the reality of our industry.

Kash also asked about enduring growth levers as you go forward.

You know, when I look at growth and the importance of what we do for our customers, I would say the most important thing that we do is we are a database.

And the way to look at us is we're doing these hundreds of millions of database transactions every single day for our customers and it's growing, it grew 60% year over year, and that is my number one metric.

I don't really look that much at the sales numbers.

I don't really look that much at the revenue numbers.

I am mostly looking at the transaction numbers.

I want to know are customers using this product, are they managing and storing their data in the system, are we providing value to these customers.

And that's why for years now we've provided the transparency to you, our investors, so that you can also watch these numbers.

We are unique in that.

Microsoft has no such thing.

There's no trust.microsoft.com.

It's an oxymoron.

There is no trust.oracle.com.

There is no trust.sap.com.

The very thought of it makes them cringe in horror.

But for us and for you, we need to see trust.salesforce.com to see the level of performance, growth, to see when things are going well, to see when things are not going well, to make sure we are improving, to make sure we keep our eye on the ball.

There's nothing more important to our Company than the trusted success of our customers and that's why we have trust.salesforce.com.

And I believe also as we have seen with important and critical announcements that have been made by regulators around the world, transparency like we're talking about is going to be critical to cloud computing.

Trust and transparency will be the hallmarks of the services that we provide to our customers around the world.

Brett Thill, UBS.

Graham, just two quick questions.

Deferred was obviously less than seasonal and a lot better than any of us had modeled.

Other than FX, was any other impact that impacted DR this quarter?

And then just second if you could follow up and remind us, what was your lowest attrition level?

It seems like now you're in the mid-teams, that feels like it could still go down to the low teens.

Sure, in terms of deferred revenue, Brent, there was nothing unusual in terms of a shift in our billing mix or anything like that.

We had a very, very consistent receivables kind of profile in the first quarter.

We just had a really, really strong invoicing quarter and obviously that's why we feel better about our cash flow forecast for the remainder of the year as well.

So no unusual things in deferred revenue number other than currency as you mentioned.

In terms of attrition, my recollection was when we first started reporting a dollar attrition number, it was sort of in the mid-teams and I think it went up into the high teens and now it's obviously come back down into the mid-teams.

So, I don't have data that sort of dates back three, four, five years, even before I was at the Company.

So, I think it would be pretty difficult I think to go back and reconstruct that.

So I've always said I think publicly that we feel with the right set of circumstances with the right economic backdrop with the right programs in place internally we could get attrition hopefully into the low teens.

But as you can tell, even though we are putting a lot into this and the economy is definitely improving, it's a slow decline.

So we just want to keep that steady decline each quarter going.

Ross MacMillan, Jefferies & Co.

Thanks a lot and congrats on the quarter from me as well.

Marc, I wondered if you could just talk a little bit about the platform and what should we be looking at this year in terms of developments that you'll bring?

And how should we be thinking about its evolution and contribution to billings or to sales?

Thanks.

Well, the platform is by far our most important product.

It's our differentiator.

It's our third most used feature by all of our customers.

It's really the heart and soul of the Company.

And kind of just taking on the comments of the database, we don't really make a CRM pap.

Of course we have a Sales Cloud and Service Cloud and when you demo that and show it, it looks like an app.

But really it's a platform.

It really is about our customers' ability to get in there, to customize the tabs, the fields, the screen layouts, to write the triggers, the stored procedures, the route mode procedure calls, to add in the social networking, to integrate it with the services that they use, to tie into our APIs.

That's what we bought a company last year Sitemasher because websites have become so important to our customers as an integrated part of their CRM experience.

And that's why we bought Heroku.

We look at the platform as a critical part of what we do for our customers, and certainly when we talk about these extraordinary transactions that we have like the ones that we're talking about on the call today, these are platform-driven opportunities.

When we are in there, we're winning these deals because when you use our platform, it's just not like anything else that's out there.

It's not a fixed app, it's not a fixed app in your e-mail, it's not a fixed app running on your PC.

It's a database that lets you manage and share your information at a much lower cost, integrated deeply into the social networks and running on your mobile devices.

And this is really what customers want and they integrate it into your websites and integrate it into your Internet sites and to build custom apps and on and on and on.

And as we look at the heat maps for our customers, we look at how far is the platform driving into their enterprises.

We had a customer speak at our management meeting a couple of weeks ago and they put up a heat map of how far we've gotten in their enterprises.

There were 15 apps that they had built all on the platform.

And that's very much our strategy in our customers.

Tom Ernst, Deutsche Bank.

It's [Stan Slavsky] sitting in for Tom.

Very good, thank you for taking my questions, very quick ones.

Europe continues to be strong for you.

Anything in there that's really driving that growth?

Even in constant currency it still continues to be strong.

And second, have you seen any lengthening of sales cycles in Japan due to the disaster there?

Thank you.

I think that all territories continue to be strong and Europe is strong, the US is strong, and Asia is strong.

And Japan relative to what is going on there is strong and I'm making my first visit there since the disaster next week.

And as I said in the script, we are surprised at how close that the numbers are for Japan and our Japan pipelines and so forth.

I will assess in detail next week, but our brand and our commitment to Japan I think has never been stronger and we will double down on our commitment to Japan and we hope to be able to show customers through our outstanding reliability, scalability and availability during the disaster that we are absolutely the right thing for Japan.

Our data center in Tokyo is running well in test mode.

It had no interruptions during this disaster.

And we will turn it onto production shortly as well which will be great for Japanese customers and we continue to expect a very strong Japanese business.

Robert Breza, RBC Capital Markets.

First off, great quarter.

Marc, I was wondering if you could talk a little bit about your comments.

You said customers were buying more.

I mean how are you seeing that or could you help us just characterize it?

Is it more seats?

Additional new products?

Longer-term contracts?

Just like to drill into that a little bit more.

Thank you.

Well, I will tell you that what I see in the enterprise buying environment is that the recession is behind these customers and that we're in the recovery.

It may not be as big as everybody hopes it to be, but the reality is we are in recovery and in addition to that, that customers want to buy new technology and they want to buy new solutions.

They recognize they need to upgrade and enhance what they have, that we are moving into this new world and they need to move their systems into that world and that the traditional approach is not the right approach for them and that they're looking to new vendors which are us and other cloud vendors to make the transformation.

Walter Pritchard, Citigroup.

This is Robert for Walter.

Just a question on -- and congratulations on the great quarter.

A question on some of the larger deals.

I think last quarter you guys talked about pretty good diversity and the mix of large deals across product lines and I'm just wondering if you're sort of seeing the same pattern here where you're getting a lot of traction outside of Sales and Service Cloud.

I think we're -- Graham, do you want to answer that?

Sure, yes.

We had a -- you can tell obviously we had a very strong new business quarter and I think we continue to see the same nice mix of products, nice mix of geographies.

And we had a really good slate of large transactions as well in the first quarter which has not always been the case particularly in the tougher economy a couple of years back.

So it was really an excellent quarter all around.

Couple more questions, operator, and then we'll wrap things up.

Brad Zelnick, Macquarie.

Thank you and great quarter, guys.

Marc, I'm curious if there are any updates you can give us on VMforce.

And I was also hoping with Cloud Foundry being introduced in the quarter, I wanted to get your thoughts on the model they propose.

And just can you remind us to what extent are the concepts of cloud and virtualization overlapping?

How do you see this playing out in the world?

Well, I think the first and most important thing about virtualization is you have to remember that the vast majority of sales of virtualization software to enterprises to create what has been called private clouds are exactly that.

It's software.

It's a software product that you buy, install, upgrade and maintain to virtualize your servers to make them more efficient.

It's definitely a innovative step in the history of our industry where you can load software onto a server that may have not had the level of efficiency that you want as a large corporate customer and you make that server be able to run multiple applications and multiple databases and multiple operating systems through this virtualization software.

And that is virtualization.

But that's not cloud computing.

That's not the public cloud, that's not the low-cost efficient shared model.

That's not the 100,000 customers that we have running on 2,500 shared PCs.

That's not kind of our cloud brethren which are the very fast-growing companies who are delivering services.

These are companies who are running multi-tenant architectures that are shared systems that are delivering these applications directly over the Internet to millions of customers around the world.

And that is the difference between kind of what I would say our cloud computing model and the false cloud.

And the false cloud I think is a cloud in name only, but I think when our industry shakes out, you'll see that this new model of public cloud computing will be the dominant model that enterprises will have automated themselves with just as it is the dominant model that consumers automate themselves with.

We're going to take one last question, and my apologies to those of you who we are not going to get to today, but feel free to give us a call afterwards.

So last question please.

Brendan Barnicle, Pacific Crest Securities.

Marc, I was wondering what additional functionality that you either want to add to or build for as you think about the Marketing Cloud.

Well, I think we are really at the beginning of the Marketing Cloud.

Our story, we're just starting in marketing.

We're not -- I think that we just took delivery of Radian6 a couple weeks ago, we're just starting to really understand what customers want.

There's obviously a broad range of areas that we can move into in regards to marketing.

Honestly the problem is we're in a lot of things already that are hot.

So we're in collaboration that's hot.

So we're sales that's hot, we're in platform that's very hot.

We're in data that's very hot.

And now we're touching marketing.

But before we like rush ahead and do building out the Marketing Cloud which we obviously could easily do because there's a lot of exciting assets there, there's a lot of exciting companies there, but we're very cautious about doing that.

Because if we go ahead and build that out right now, what will suffer or what will we have our eye off the ball in one of these other critical areas?

And that -- so I would say we're at the beginning of that and certainly we have got a tremendous position with a tremendous company with Radian6.

And from there, we will I'm sure build a complete and full product line but it's not an urgent item on my agenda.

Okay, before we wrap up, I just want to remind everybody here quickly of a couple of events that salesforce.com executives will be attending in the next few weeks.

On June 6 in New York City we will be at the BofA Merrill Lynch conference.

Graham Smith will be our presenting executive.

And on June 15 in Chicago the William Blair conference, George Hu, our Executive Vice President of Platform and Marketing will be our presenting executive.

We look forward to seeing you all.

Also, just in case anybody cares, on June 2 in Washington, DC I will be at our Cloudforce program -- sorry June 1 I'll be doing Cloudforce in Washington, DC where we'll be presenting a number of new technologies including Radian6.

And also I'll be in Boston on June 16 presenting our corporate overview strategy and again giving you new technologies.

Thanks, David, for letting me interrupt.

Fantastic, thank you very much.

I guess while we're at it, we may as well remind everybody to register here now early and often for Dreamforce.

We look forward to seeing you there as well.

So thank you for joining us today.

Give us a shout here at investor relations if you have any follow-ups.

Have a great day.

Ladies and gentlemen, this does conclude today's conference.

Thank you for your participation.

You may now disconnect.